All right. Good morning, and welcome to J.P. Morgan's 52nd Annual Technology, Media, and Communications Conference. My name is Harlan Sur. I'm the semiconductor and semiconductor capital equipment analyst for the firm. Very pleased to have Eric Bjornholt, Chief Financial Officer of Microchip, here with us today. We also have Sajid Daudi, Head of Investor Relations. Microchip, top 5 microcontroller supplier globally, number 1 market share in industrial market MCUs, solid analog, and FPGA portfolio. It's been a busy earnings season, so I've asked Eric to maybe start us off with a summary of the March quarter and June quarter outlook, and then we can go ahead and kick off the Q&A. So, gentlemen, thank you for joining us this morning, and Eric, let me go ahead and turn it over to you.
Great. Thanks, Harlan, and good morning, everybody. So just a quick summary of March quarter earnings and our guidance for June. So March was a difficult quarter for us. We produced $1.326 billion in revenue. That was down significantly year-over-year and down almost 25% in the quarter. We are going through a pretty extraordinary inventory correction at this point in time. We have guided the June quarter to be down again about 6.5% at the midpoint to $1.24 billion in revenue, but we are starting to see some very positive green shoots in the business. Harlan will have some Q&A that will cover that in a little bit.
We are maintaining our gross margins on a Non-GAAP basis at about 60%, and our operating margins this quarter are expected to be about 31.5%. Cash generation is still good. We're committed to our capital return program. We're managing this difficult environment pretty aggressively. On the expense side, we've taken our operating expenses down about 24% from where they were a year ago in the June quarter and done that without laying off employees. We've done it through a shared sacrifice program with everybody in the company on a pay reduction. We're managing inventory through shutdown activities in our factories, and, you know, we are going to be well-positioned to grow coming out of this cycle when things rebound, which they definitely will. We've got, you know, inventory in place, short lead times.
We've got capital in place to be able to respond quickly as things get better, and we are focused on areas of the market that we think will provide outsized growth for Microchip. We, we call those the Megatrends. We'll probably talk about those a little bit in the Q&A also, and then have a focus on servicing our customers better through a process we call TSS, or Total System Solutions, where we're trying to get more share of the semi vector content in each customer application that we're selling into with our vast array of microcontrollers, microprocessors, FPGAs, analog solutions, security, timing, memory, and being a higher valued service provider to each of our customers. So with that, I will turn it over to Harlan for Q&A.
Yeah. Thank you for, again, for the participation. So in terms of the team's view on June quarter being the bottom, right? Back at the earnings call, you cited a number of different green shoots. One of them is, up until the beginning of this quarter, you know, positive, you know, bookings trends so far through the beginning of the quarter, push-out cancellations subsiding, expedites increasing. We're two-thirds of the way, roughly, through, the June quarter. Has the team continued to see these positive trends, here so far, quarter to date?
So we have, you know, bookings were really weak last fiscal year. We went through a period where we entered 2023 with 52-week-plus lead times for the vast majority of products, and when we ended calendar 2023, lead times were roughly eight weeks on average for our products. So big correction there, and bookings are as many times a function of where lead times are. But in today's environment, with customers having inventory, it's also a function of those lead times then matching up with where customers are in getting their inventory to an appropriate level. So February, we saw the strongest month of bookings that we'd seen in eight months. March improved from that and was the highest booking month in fiscal 2024, which ended in March for us. April then again was better-
... than March, and, you know, May, we're still in the middle of, but the positive signs have continued there on the bookings front.
Well, thank you for that. Despite the lead times being eight weeks or less, you are getting customer bookings 3-6 months out, so you are getting backlog coverage for the September quarter and maybe even some for the December quarter as well. But have those longer-dated order trends also continued to improve, and have the level of turns business the team requires for this quarter continued to come in as expected?
Okay. So, yeah, I mean, every customer is kind of different in how they place their orders. You know, we have a 90-day cancellation policy today, and so anything that's placed outside of 90 days, customer has complete flexibility-
Sure
...to push it out or cancel it. But now we definitely are seeing more short-term orders in line with lead time-
Mm-hmm. Yes
... and that's a good sign that a portion of the customer base is kind of working through-
Yes
... their inventory issues. And longer-term bookings, you know, there's been less of that.
Yeah.
There's been less of that from what we saw when lead times were longer, but there are certain customers that, you know, pipeline their orders out in time, and that, that continues. And so, the last part of your question was kind of on turns. And what we're seeing, and this is some of the green shoot activity, is not only are we getting turns orders that are, you know, short-term oriented turns in line with our lead times, we are also getting much fewer requests for cancellation and pushouts.
Mm-hmm.
We are also getting pull-in activity. So a customer might have an order that's placed to be delivered in the middle of July, and they say: "Hey, I actually need that now in the middle of June." And so if our manufacturing team can support that-
Yes
... and generally they can because we've got lots of inventory on the balance sheet. We respond to that.
... You know, Asia, much of which you guys break out your Asia segment, much of which is China continues to be your weakest geography, right? It was down 47% year-over-year versus the total business that down 41. Chinese New Year's was later this year, right? So you didn't get the post-Chinese New Year's sell-through read until after the February earnings call. You didn't talk about it on the last earnings call a couple of weeks back, but what were the demand/disti sell-through trends you saw post-Chinese New Year's? And is the China domestic customer base contributing to some of the monthly bookings and turns improvements that you're seeing?
So, you know, China post-Chinese New Year was not gangbusters.
Yeah
... by any means. You know, we had a pretty difficult quarter in March. We met guidance-
Right
... but it was pretty difficult. China was really the first geography to go into this downturn.
That's right.
And so we are seeing some positive signs there that sell-through is improving, and that that's a great sign because I would think that, you know, the other geographies will follow at some point in time. So we are seeing some positive things out of China. On the bookings front, I can't really differentiate. I mean, we are-
Yeah
... it's, you know, we've got 125,000 customers that we service, and it is not tied to one geography or one end market. What we're seeing on bookings improving is pretty broad-based.
In March, direct customer shipments were down almost 30% sequentially. Your disti shipments were down about 20%, which may suggest that excess inventories were a bit more pronounced at your direct customers. And I think the challenge there, it's always difficult to figure out, like, your direct customer inventories, right? 'Cause you don't have as much visibility. Obviously, the best way is to monitor the bookings trends, but are you also seeing the positive bookings trends out of the direct customer base as well?
So we absolutely are. So, you know, the one quarter activity where direct was down more than distribution-
Yeah
... I don't think you should take too much from that. You know, what we see in distribution is generally they are sitting on elevated inventory levels, but what they're sitting on many times is out of mix from what their customers need, and so they are having to place orders. Some, you know, may take some time-
Right
... to completely correct their inventory to where they'd like it to be. And, you know, they're tend to be pretty thinly capitalized, low margin, and, you know, working capital is a challenge for them. And so with higher interest rates, some of our distributors are definitely struggling, but when that product is out of mix and their customer needs product, they're placing orders in short term. On the direct side, definitely are seeing the bookings activity that I talked about earlier-
Right
... applying to both direct and distribution customers.
Perfect. And, you know, we've been wondering about this for many of our broad-based companies, including Microchip, right? Which, which was that during the post-COVID supply tightness, 2020, 2021, 2022, I'm wondering if you, like some of your peers, took advantage of the supply constraints to exit from more commodity segments of the market, right? Consumer white goods, consumer electronics, client PCs, right. Longer term, it should obviously help to increase your through-cycle growth and operating margin profile, but maybe near term, I'm wondering if this is impacting your business as it potentially maybe magnified the peak-to-trough revenue decline this cycle and is maybe potentially muting the recovery profile going forward, because typically these more commodity segments are the ones that maybe typically tend to come back first.
So I don't really think that's a large factor for us. I mean, if we broke out some information about on end markets, and the consumer piece of our business, which, as you mentioned, is primarily white goods, was down, like, 1% year-over-year, I think is the number, Sajid. And so some minor changes there, but, you know, we focus on areas of the market where we can drive consistent margins and design activity that tends to last for a very long time. So we had a pretty small consumer exposure-
Yes
... in the first place and didn't really manage our business much differently in the upcycle, right? All our customers are important to us. We had orders placed on us, and we tried to support them as, their demand requirements required us to do.
But the Microchip team has always been, as you said, very prudent and always focused on profitability, product mix. And you're right, through cycle, I think the team is always looking for opportunities to improve the mix. It just felt like maybe during the COVID supply tightness period of time, that maybe there were a bit more opportunities for the team to maybe move away from lower, more commodity segments of the market. But was that the case or not really?
Not significantly. Like I said, we have tried to avoid those-
Yeah
... types of markets anyway.
Right.
We have very little exposure there-
That's right
... and that's what's allowed us to drive the margin structure that we've had over time.
Looking back on the PSP program, in hindsight, I mean, it was the right business arrangement in a tight environment, right? Because it helped you plan your supply requirements, SKU builds, drove a high level of customer responsiveness. Despite that, maybe it did augment your customer's ability to maybe potentially build too much inventories. And maybe with the 45% peak-to-trough decline this down cycle, that is a reflection of that. But, you know, what is-- looking back, I mean, what is the team's assessment of the PSP program?
The PSP program was successful.
It supported customers in a time period where we saw our lead times expand-
Right
... to an extent that we hadn't seen in our history, and customers were asking for a solution to that. And so we introduced this program that most of you understand was kind of a 12-month-... NCNR, a non-cancellable, non-returnable program. It worked great. The issue is when the market started to change, you know, did Microchip respond quick enough in making changes to that program? And with hindsight, you could say maybe we should have taken the foot off the gas pedal a little bit earlier. But, you know, if you talk to most of our customers, they would say PSP was absolutely a success.
Yes.
We changed the program from a 12-month program to a six month program back in August of last year, and we did away with the program in its entirety in February of this year. So I think that we would consider doing a program like PSP again.
If we had this time of lead time pushout, but I think we've learned some things through this cycle, and it probably could have been managed a bit differently.
So I'm gonna transition to some of the mark, product, and share dynamics. But before that, wanted to see if there are any questions from the audience. If you do have a question, raise your, raise your hand and, we'll get a mic over to you.
Thanks for taking the question.
Well, turn it. Yeah.
Thanks for taking the question. So one of the good things about your business model is that in the downturns, you protect the margins by taking the working capital hit, and on the upside, you can avoid increased pricing at foundries. But is there anything anecdotally you can tell us that your customers have said to you through this down cycle or anything quantifiable about building long-term relationships with your customers, which show that they really appreciate this business model?
Yeah. So the really one positive benefit of this last cycle is our customers at a higher level within the customer, so at the C-suite or even out of our customers' customers, now understand the complexity of the semiconductor supply chain, and there was lots of C-suite to C-suite discussions that were more strategic than you might have if you're talking to purchasing, as an example. So I think those things are all good, and so I think those relationships will continue. Clearly, today, when there's excess capacity in the industry and customers have higher levels of inventory, those discussions have not really continued at the same level that they were when CEOs were calling Ganesh because, "Hey, I need product tomorrow, so my manufacturing operations are shut down." But, you know, I think those relationships will pay dividends over time.
Customers have a better understanding of what all Microchip brings to the table, which has changed pretty dramatically over the last decade with all the acquisitions and the products that we've added to the portfolio. So I think that is absolutely a positive from this last cycle, is the customer relationships that we have built at a deeper level.
Hi. I'd be curious how you'd characterize the auto end market. I know you said there are the improvements have been broad-based. You know, it's that end market had seen maybe relatively more stability through the beginnings of the inventory correction in the industry. I'm just curious if, if you think that may portend a longer road to recovery in that end market, or if you feel like the strength in the end demand and content is enough to, to have it fall through with improvement consistent with the other end markets.
Okay. Okay, so question on the auto market. So, you know, we tend to not track end markets on a quarterly basis. We provide information to the street once a year in terms of what our end markets have done, and I think the automotive market was relatively stable year-over-year in percentage of revenue. Maybe it was up 1%.
Maybe it was up.
Yeah.
I think it was up.
But anyway, I think that automotive probably went into the cycle a bit later, right? They had some pretty significant supply challenges early on, post-COVID, when they weren't buying anything and inventory got drained down. And, you know, some of these deeper customer conversations that I talked about in the last discussion absolutely applies to the automotive market. But, you know, there's lots of discussion today in terms of what's happening with EVs and, you know, it was really hot, you know, a few quarters ago, and now it's not as hot as it was. But in the longer term, that EV and ADAS are trends that we are focused on, that we see as long-term opportunities for our business, where we're continuing to invest. But, industrial and automotive kind of went into this a little bit later.
But we were talking about starting to see signs of weakness in industrial and automotive as early as last summer, and that clearly has come to fruition, and today they are part of what we're seeing in these increased customer orders. Automotive is a part of that, but it's a relatively smaller piece of our business than some others in the industry. It's 17%-18% of the total.
Yeah, and I'll just add to that, is just over the longer term, content growth story remains kind of the key driver from our perspective, and you're seeing kind of even mid-tier cars have higher levels of content today than a few years back. So longer term, still very positive.
Any other questions? Let's turn to more of the products, market share, portfolio strategy. So, the third-party market share numbers are out for calendar 2023. It's always hard to discern true market share in downturns, right? Given you and your competitors are all shipping below consumption trends to varying degrees, right? But the Microchip team did continue to remain a top five global microcontroller supplier, number one share in industrial market MCUs, number one share in eight-bit microcontrollers. You're a top five MCU player in the auto markets. You've got your total systems solution to-- strategy, or TSS, and you're levered to the six Megatrends, which we'll talk about in a second. But as you emerge from this downturn, I mean, how well-positioned is the portfolio? Maybe you can just talk about the design win momentum on MCUs.
You've got a strong portfolio of different architectures, PIC, AVR-
... ARM, any potential, and then any potential to expand the portfolio at some point to support other architectures like RISC-V on the MCU side?
Okay. The product portfolio is in great shape. You know, we've been investing heavily through the last upcycle. Again, our approach to a downturn is different than many of our competitors, where we don't do layoffs, and we take out a lot of OpEx in a downturn like we just have, 24% reduction. But keeping everybody engaged on new product introductions is key for us to drive market share in the future, and our customer support activities to make sure our customers, we are working with them on the next design. So the design pipeline is super, super full today. We're actually seeing momentum there.
During the upcycle, when customers were scrambling just to get parts, design activity actually decreased a little bit because everybody was having to take maybe a, a part that was a bit different from Microchip or one of our other competitors, and that's what was available, so they could tweak the design to get the product still to market. Today, we are seeing true design activity. We're getting great signs from, like, our catalog distribution houses, Digi-Key and Mouser of the world, that the design activity is quite high, so that's good. The second piece of your question was on architecture-
Yes
... and RISC-V. So, you know, we were one of the early adopters of RISC-V, but that was not in our MCU business.
Right.
That was actually in our FPGA business.
Right.
You know, clearly, that team has brought that into the company for evaluation by our MCU group. So we are fairly core agnostic, right? It's everything that goes around the core that makes the product do what it needs to do from the customer perspective. But RISC-V has some benefits to it, and so we're continuing to evaluate it by our team, but have not made any significant investment in RISC-V in our MCU product line today, but FPGA continues to use it, and we're still kind of in an evaluation phase.
And Sajid-
You know, I, I gotta add, and Sajid should have kicked me under the table. I didn't kind of do the typical safe harbor when I started, and during this, we are gonna talk about forward-looking statements or refer you to our SEC filings that highlight important risk factors about the company. So sorry about that.
No, I appreciate that. Sajid, you did bring up a good topic, which was content growth, right? And that's where Microchip's total system solution, or TSS strategy, comes into play, right? And the whole idea is driving more dollar content per customer engagement, given your broad portfolio, right? I ask this question every year, but, I mean, any metrics you can share with us? And if not, qualitatively, on a year-over-year basis, is the team continuing to drive increasing dollar content per customer engagement?
So we absolutely are. We do not share a lot of metrics with the street, but, you know, we look at, you know, parts per system.
Yes.
Number of parts per system continues to increase-
... every year and every quarter. You know, honestly, it's a bit of a slow-moving metric, right?
Right.
Because, you know, we sell products into an industrial customer. They might buy that part for 15 or 20 years and not add anything else around it. But in new design opportunities, we are seeing that our business units are working fantastically together. We're introducing new reference designs all the time that can take, it could be the FPGA is kind of the anchor product in that system, and all the things that can and should go around that, and why the customer should use Microchip. We can speed their time to market, we can reduce their investment in R&D. Makes a lot of sense, and so we're gaining good traction there, and we have lots of metrics that we use internally. Some of those metrics might not resonate with investors, just because, again, these are slow-moving metrics, but the momentum there is fantastic.
Overlaying the TSS strategy, you know, you've got a focus on the six Megatrends: 5G, IoT and edge compute, data center, auto electrification, sustainability and alternative energy, and ADAS and autonomous driving. What has the team done differently there relative to your broad portfolio catalog approach? What has the team done to drive more penetration into these six Megatrends? And again, any metrics that you can share with us on momentum or these particular segments, you know, have they been outgrowing the overall business, or do you expect them to outgrow the overall business looking out over the next few years?
So yes, they are outgrowing the other overall segments. I think back in our Analyst Day, back in November of 2021, we talked about expecting the Megatrends to grow at twice the rate as Microchip overall. We broke out data at the end of fiscal 2023, our prior fiscal year. We haven't shared that information yet for fiscal 2024. That's still being refined and evaluated, but we will share it, and it will continue to show that the Megatrends are growing at a faster rate than the rest of the business. We have about 25 business units within the company.
They are all working collaboratively together, focusing on the Megatrends and how we can sell more of our parts into each system that our customer is buying, which can amplify profitability, and honestly, improve the stickiness that we have with our customers because become a more valuable supplier. Anything else you'd add?
No, I would just say, you know, our objective really isn't to attain a certain market share or something-
Correct
... in there. It's really drive that customer solution.
You know, TSS works great from that perspective.
On the FPGA side, you know, the team drove record FPGA revenues again in your fiscal year. On the calendar 2023 market share rankings, you outgrew the overall FPGA market by over 10 percentage points. Very impressive. Strong number four global market share position, focused on the mid-range FPGA segment of the market... what end markets, applications is the team driving the most growth in customer adoption? And sort of postmortem, I mean, what drove the strong growth in share gains, over the past, like, 12-18 months?
Right. So in FPGAs, we are firmly implanted in kind of the mid-range FPGAs, as, as you mentioned. The business has been growing fantastically. It, it grew 31% in fiscal 2023. It grew 22% in fiscal 2024, that just finished in March-
It's about a $670 million annual business as of last fiscal year. It has a heavy aerospace and defense footprint. That has been our strongest end market over the past year, and so that speaks to some of-
Yes
the reasons why we have outperformed. But, you know, we also think that, you know, we acquired this asset from Microsemi six years ago now, and we have taken that asset and expanded it beyond aerospace and defense. So aerospace and defense, even though it's a large piece of the business.
Yes
It's a smaller percentage of the business today than it was back then, and that's because we're now penetrating industrial communications-
... automotive, et cetera. What else do you want to say on FPGA?
No, I think just the other thing, just an earlier comment on the Gartner side, you know, Gartner, I think, had it in their report at $480 million, so they grossly underestimated, you know, what our FPGA market position was. So, the $670 million number that we shared on the call is what the true number is, so.
At earnings, you announced—kind of surprised us—you announced that you were developing a family of 64-bit embedded microprocessors, not MCUs, but processors, right? And I know the team has been in the market with a 32-bit microprocessor family. But according again to the market share data, the embedded processor business from Microchip isn't all that big. So what is the rationale for adding embedded processor capability to the portfolio?
So we really just view it as a continuum of what we've done and, you know, kind of starting at the low end of 8-bit on the MCU side and expanding up to the high end of 32-bit. We have had microprocessors-
Yes
in the portfolio
That's right
... since the acquisition of Atmel back in 2016.
Mm-hmm.
We've had this for eight years or so and have continued to invest. Now it's really the combination of our microprocessor team, our high-end MCU team, and our FPGA team, that are really looking at all this together to bring solutions to the marketplace that gives the broadest capability in the processing market. Again, it could be a microcontroller, a microprocessor, an FPGA, and allows customers to pick what they use that is the best solution for them at the right price point. We are doing this in a common development environment across all of those products, which makes things very easy from a customer's perspective.
Yeah.
Yeah.
Yeah, I would say, I would agree with that. Moving up the stack into the embedded processor market will make it much easier for the Microchip team, just because of the installed base of the software, the firmware, the ecosystem, that your customers have been familiar with, right, for quite some time.
Yeah, that's right.
And the world, I think, is moving towards higher levels of compute-
That's right
And we're seeing that, so, you know, it certainly will complement existing portfolio.
Let's talk a little bit on the financial side. So on the inventory side, you're sitting on 224 days of inventory, well above the long-term target of 130-150 days. How much of that is sitting in die bank? And secondly, like, at what levels do you need to see balance sheet inventories to you know, decline to trigger ultimately an increase in utilizations?
Okay. So, you know, inventory is clearly high today. The days calculation is inflated because revenue is depressed-
Right
... right?
That's right.
So it's essentially you're taking your last quarter cost-
Yeah
- of sales and annualizing it. So that, it's, that really isn't the right metric. You've got to look at, you know, what do you think the business is going to do over the next 12 months-
That's right
... 18 months-
That's right
... to position that inventory. But from where we have the inventory, we try to keep as much of the inventory as possible in die bank, right?
Because that gives us the most flexibility to have short lead times with customers, not put a package and final test a product until we have an order from the customer and be able to turn it to them in many times, 3-6 weeks. So it supports short lead times, and I, I think that inventory number over time will come down as revenue improves. We are doing two-week shutdowns. We did two-week shutdowns in all of our fabs in the March quarter. We're doing it again in the month of June. And we—it'll really be when we start seeing that that revenue curve is bending-
Yes
... and heading in the right direction, that we will evaluate, you know, where inventory is, where it is heading to, and when we should start to increase utilization. And the first step with that would be to not have a two-week shutdown, and then from there, it would be to increase wafer starts. And we are really well positioned to cost-effectively grow capacity because, you know, just June quarter of last year, we were doing almost $2.3 billion in revenue, and our factories were set up for that. We also have about $350 million in capital that we have received in, that is not deployed for manufacturing yet, and so our capital intensity is not just low this year in fiscal 2025.
I expect it to be low again in fiscal 2026, and that's not because we have a poor revenue outlook in fiscal 2026. It's because we already have the capacity either to grow back into or capacity that is sitting there-
Yeah
... waiting to deploy on a very cost-effective basis.
I think we had a question over here.
Hi.
Wait for the-
Just a second, Joe.
... wait for the microphone. Yeah, thanks.
... Thanks. Can you talk a little bit about the data center market? You guys have introduced some retimers, PCIe retimers, gained some market share there, and it's a, it's a fairly attractive, fast-growing market. Thanks.
Yeah, so, you know, again, most of our data center business, or the largest piece of it, came to us through the Microsemi acquisition, and it's been a extremely good, fast-growing business for us. Obviously, it's part of one of our Megatrends that the company is focused on. We've seen a lot of growth there. Just like the rest of the business, it has gone through an inventory correction, but the traction that we have in that business from a customer perspective is very strong. We're extremely bullish on that business long term, continuing to make significant investments there, and it fits in very well, again, with our TSS strategy to the market. So we're excited about the business. It's performed well.
Again, just like the rest of the business in MCU and analog, it is going through that same inventory correction, but long term, we see it as a major growth driver for the customers and for our business overall. And from a new product introduction standpoint, we haven't been sitting still. We're continuing to introduce new products. You mentioned some of those, and, you know, we see those as large opportunities for growth.
Got a question over here?
Yeah, there's been a decent amount of capital spending by Chinese semiconductor manufacturers, particularly at the trailing edge. Can you talk about your exposure to domestic-
... Chinese customers and kinda how you think about the defensibility of the portfolio and the opportunity to continue to grow in that, geography?
Sure. So, you know, there's no doubt that China is investing heavily in semiconductors and definitely investing in some of the areas that we have a market presence in. Just because you have capacity doesn't mean that you're gonna be able to penetrate the customer base that we have. But we sell about 20% of our revenue into China. We believe about half of that is for domestic consumption, and about half of that number are things where, you know, we could see some competition in certain microcontroller and analog lines over time. The other piece of that is things that we think is highly proprietary to Microchip, that the competitors there just don't have ability to penetrate.
So we're talking about a potential 5%, I'll call it, an issue over time, but, you know, there's a reason that these customers have chosen Microchip. In many cases, they're in markets that we get designed into, and they sell for 10, 15, 20 years. So if there is a bleed from that revenue, I think it's gonna be a slow bleed over time. And again, when these new entrants to the market come to the market, you know, they come with one or two mask sets, right? They might have 20 products, and, you know, they're competing with us and some of our large competitors that have, you know, thousands, 100,000 SKUs in their portfolio, and that's very challenging from a customer's perspective, right? You might be able to be successful at that in kind of a targeted consumer application, right?
But in the broad markets that we service, customers want flexibility that, "Hey, you know, I start my design process, and I think I need this. I get feedback from the market that says I need to add features and functionality," and they don't wanna get stuck, that what they've selected doesn't have capabilities for them to expand. And that's, again, where our broad portfolio, and I'll take MCU as an example, from the low end of 8-bit to high end of 32-bit, now expanding into 64-bit. Customers really value that flexibility because it's not only for their design they're doing today, but what they want to move to in their next design. So, I think we're well positioned. We don't have our head in the sand.
Clearly, there is going to be increased competition over time, and we're making strategic investments in where we're targeting our products to go to and the markets that we're investing in from a people standpoint to what we think will maximize our revenue.
Team is three quarters away from unlocking a 100% free cash flow return, both dividend and buyback. And in hindsight, it was actually a great strategy to step up to that percentage, right, to hit a 100%, especially as we were, you know, in the midst of a downturn. But the team has also continued to opportunistically add small tuck-in acquisitions. You did two acquisitions this past quarter. One was to add high-speed connectivity to the portfolio, the other was a software add. The market oftentimes forget you are an embedded processor company, right? Software and firmware are key differentiators here. Alongside the entry into the 64-bit embedded processor market, should we anticipate more maybe software and firmware bias as it relates to future add-ons to the portfolio?
Yeah, I mean, software and firmware are something that is super important for our more complex products and for our customers' perspective to really help them bring their applications to market, so I think that's true. You talk about some of these small acquisitions that we've done, and those will likely continue. Again, these are not needle movers in terms of the dollars amount that we're spending, but they can help propel us in a certain area for a product line, bring us IP, bring us a design team that can take us to market quicker, and so we'll continue to evaluate that.
You know, clearly, with where the market is at today, there are certain companies that are struggling financially and are looking for somebody to partner with, and so we'll continue to review those opportunities, but most of these are gonna be quite small.
Eric, Sajid, thank you for the participation and insights. Really appreciate it.
All right. Thanks, Harlan.
Thank you.
Thanks, everybody.